Will the Year of the Pig rein in yuan bulls?

As goes January, so goes the year? If that’s the case, Chinese yuan strength in the early weeks of this year should mean a strong performance versus the US dollar in 2019 as a whole. But such has been the pace of this yuan rise, investors might be disinclined to chase the move from current levels. Such a cautionary approach might well be justified.

Indeed, some likely drivers of the yuan’s early January rise may prove short-lived.

Investors who are already “on the trade” will be mindful of managing their exposure. It’s never wrong to take a full or partial profit on a position. As for those investors who missed the initial move but now feel 2019 will indeed see a broadly lower US-dollar-to-Chinese-yuan exchange rate, it might be advisable to take a moment to reflect.

On the issue of yuan appreciation potential, it might well be that markets, which in the second half of 2018 were exposed to a plethora of reports about the challenges facing China’s economy, were probably psychologically ill-prepared, and so ill-positioned, for renminbi strength as 2019 dawned.

Initial yuan appreciation in the first days of January arguably triggered a snowball effect as investors, for fear of being left behind, felt compelled to pile into the renminbi.

In truth, markets may have underestimated the prospects for China in comparison to those of other major economies. Indeed, while analysts continue to evaluate........